Boston Properties Announces Third Quarter 2012 Results

Boston Properties Announces Third Quarter 2012 Results
Reports diluted FFO per share of $1.16
Reports diluted EPS of $0.38
Business Wire
BOSTON -- October 23, 2012
Boston Properties, Inc. (NYSE: BXP), a real estate investment trust, reported
results today for the third quarter ended September 30, 2012.
Funds from Operations (FFO) for the quarter ended September 30, 2012 were
$176.1 million, or $1.17 per share basic and $1.16 per share diluted. This
compares to FFO for the quarter ended September 30, 2011 of $190.3 million, or
$1.29 per share basic and $1.28 per share diluted. The results for the quarter
ended September 30, 2012 compared to 2011 were impacted by $0.03 per share of
losses on early extinguishments of debt and additional interest expense of
$0.06 per share. The weighted average number of basic and diluted shares
outstanding totaled 150,801,425 and 153,309,978, respectively, for the quarter
ended September 30, 2012 and 147,006,295 and 149,082,924, respectively, for
the quarter ended September 30, 2011.
The Company’s reported FFO of $1.16 per share diluted exceeded the guidance
previously provided of $1.13-$1.15 per share. The Company’s reported FFO
included the following items, among others, that were not reflected in the
guidance: $0.02 per share of improvements in portfolio operations and $0.01
per share less than expected of general and administrative expenses, offset
by($0.01) per share of acquisition-related expenditures.
Net income available to common shareholders was $57.8 million for the quarter
ended September 30, 2012, compared to $70.5 million for the quarter ended
September 30, 2011. Net income available to common shareholders per share
(EPS) for the quarter ended September 30, 2012 was $0.38 basic and $0.38 on a
diluted basis. This compares to EPS for the third quarter of 2011 of $0.48
basic and $0.48 on a diluted basis.
The reported results are unaudited and there can be no assurance that the
results will not vary from the final information for the quarter ended
September 30, 2012. In the opinion of management, all adjustments considered
necessary for a fair presentation of these reported results have been made.
As of September 30, 2012, the Company’s portfolio consisted of 152 properties,
comprised primarily of Class A office space, one hotel, three residential
properties and three retail properties, aggregating approximately 43.4 million
square feet, including eight properties under construction totaling 2.7
million square feet. In addition, the Company has structured parking for
vehicles containing approximately 15.2 million square feet. The overall
percentage of leased space for the 141 properties in service (excluding the
two in-service residential properties and the hotel) as of September 30, 2012
was 91.6%.
Significant events during the third quarter included:
*On July 25, 2012, a joint venture in which the Company has a 50% interest
partially placed in-service Annapolis Junction Building Six, a Class A
office property with approximately 120,000 net rentable square feet
located in Annapolis, Maryland. The property is currently 49% leased.
*On August 24, 2012, the Company’s Operating Partnership used available
cash to redeem the remaining $225.0 million in aggregate principal amount
of its 6.25% senior notes due 2013. The redemption price was determined in
accordance with the applicable indenture and totaled approximately $231.6
million. The redemption price included approximately $1.5 million of
accrued and unpaid interest to, but not including, the redemption date.
Excluding such accrued and unpaid interest, the redemption price was
approximately 102.25% of the principal amount being redeemed. The Company
recognized a loss on early extinguishment of debt totaling approximately
$5.2 million, which amount included the payment of the redemption premium
totaling approximately $5.1 million.
*On August 29, 2012, the Company acquired the development project located
at 680 Folsom Street and 50 Hawthorne Street in San Francisco, California.
When completed, the project will comprise approximately 522,000 net
rentable square feet of Class A office and retail space. The project is
approximately 85% pre-leased. The estimated project cost upon completion
is approximately $340 million with initial occupancy expected in the first
quarter of 2014. As part of the transaction, the Company also acquired the
corner site of 690 Folsom Street, which is an adjacent parcel with a
vacant 22,000 square foot, two-story structure that may be redeveloped in
the future. The consideration paid by the Company to the seller consisted
of approximately $62.2 million in cash and the issuance of 1,588,100
Series Four Preferred Units of limited partnership interest in the
Company’s Operating Partnership (the “Series Four Preferred Units”). The
Series Four Preferred Units are not convertible into or exchangeable for
any common equity of the Operating Partnership or the Company, have a per
unit liquidation preference of $50.00 and are entitled to receive
quarterly distributions of $0.25 per unit (or an annual rate of 2.0%). On
August 31, 2012, a holder redeemed 366,573 Series Four Preferred Units for
cash totaling approximately $18.3 million. In connection with the
acquisition, the Company also assumed a $170.0 million construction loan
commitment, although no amount is currently outstanding.
*On September 4, 2012, the Company used available cash to repay the
mortgage loan collateralized by its Sumner Square property located in
Washington, DC totaling approximately $23.2 million. The mortgage
financing bore interest at a fixed rate of 7.35% per annum and was
scheduled to mature on September 1, 2013. The Company recognized a loss on
early extinguishment of debt totaling approximately $0.3 million, which
amount included a prepayment penalty totaling approximately $0.2 million.
*On September 27, 2012, the Company’s Value-Added Fund completed the sale
of its 300 Billerica Road property located in Chelmsford, Massachusetts
for approximately $12.2 million, including the assumption by the buyer of
$7.5 million of mortgage indebtedness. 300 Billerica Road is an
approximately 111,000 net rentable square foot office building. Net cash
proceeds totaled approximately $4.3 million, of which the Company’s share
was approximately $2.8 million, after the payment of transaction costs.
The Company’s share of the net proceeds included approximately $2.4
million resulting from the Value-Added Fund’s repayment of a loan from the
Company’s Operating Partnership. The Value-Added Fund recognized a gain on
sale of real estate totaling approximately $1.0 million, of which the
Company’s share was approximately $0.2 million and is included within
income from unconsolidated joint ventures in the Company’s consolidated
statements of operations.
Transactions completed subsequent to September 30, 2012:
*On October 1, 2012, a joint venture in which the Company has a 30%
interest partially placed in-service 500 North Capitol Street, NW, a Class
A office redevelopment project with approximately 232,000 net rentable
square feet located in Washington, DC. The property is currently 82%
leased.
*On October 4, 2012, the Company completed the formation of a joint venture
which owns and operates Fountain Square located in Reston, Virginia,
adjacent to the Company’s other Reston properties. Fountain Square is an
office and retail complex aggregating approximately 764,000 net rentable
square feet (approximately 811,000 net rentable square feet, as
re-measured), comprised of approximately 522,000 net rentable square feet
of Class A office space and approximately 242,000 net rentable square feet
of retail space. The joint venture partner contributed the property valued
at approximately $385.0 million and related mortgage indebtedness totaling
approximately $211.3 million for a 50% interest in the joint venture. The
Company contributed cash totaling approximately $87.0 million for its 50%
interest, which cash was distributed to the joint venture partner. The
Company is consolidating this joint venture. The mortgage loan bears
interest at a fixed rate of 5.71% per annum and matures on October 11,
2016. Pursuant to the joint venture agreement (i) the Company has rights
to acquire the partner’s 50% interest and (ii) the partner has the right
to cause the Company to acquire the partner’s interest on January 4, 2016,
in each case at a fixed price totaling approximately $102.0 million in
cash. The fixed price option rights expire on January 31, 2016.
*On October 19, 2012, the Company formed a joint venture with an affiliate
of Hines to pursue the acquisition of land in San Francisco, California
which could support a 61-story, 1.4 million square foot office tower known
as Transbay Tower. The purchase price is approximately $190 million, and
the acquisition is expected to close in the first quarter of 2013. The
Company has a 50% interest in the joint venture.
EPS and FFO per Share Guidance:
The Company’s guidance for the fourth quarter 2012 and full year 2013 for EPS
(diluted) and FFO per share (diluted) is set forth and reconciled below.
Except as described below, the estimates reflect management’s view of current
and future market conditions, including assumptions with respect to rental
rates, occupancy levels and the earnings impact of the events referenced in
this release and otherwise referenced during the conference call referred to
below. In addition, the estimates for the full year 2013 when compared to the
full year 2012 include, among other things, (1) the impact of the acquisition
of 100 Federal Street in Boston, Massachusetts and the Company’s acquisition
of a 50% interest in the joint venture that owns Fountain Square in Reston,
Virginia, which are expected to increase FFO by an aggregate of $0.11 per
share, (2) the placing in-service of four projects currently under
development, which are expected to increase FFO by an aggregate of $0.05 per
share and (3) improvement in the Company’s same property performance of 1.5%
to 2.5% generating $0.10 to $0.16 per share of incremental FFO. In addition,
the Company expects interest expense to be lower by $0.06 to $0.12 per share
due to lower average debt costs and increased capitalized interest on the
Company’s development projects. These items are offset by lower termination
income and the impact of lower occupancy in the Company’s New York City joint
venture properties of ($0.12) to ($0.18) per share. The estimates do not
include possible future gains or losses or the impact on operating results
from other possible future property acquisitions or dispositions, other
possible capital markets activity or possible future impairment charges. EPS
estimates may be subject to fluctuations as a result of several factors,
including changes in the recognition of depreciation and amortization expense
and any gains or losses associated with disposition activity. The Company is
not able to assess at this time the potential impact of these factors on
projected EPS. By definition, FFO does not include real estate-related
depreciation and amortization, impairment losses or gains or losses associated
with disposition activities. There can be no assurance that the Company’s
actual results will not differ materially from the estimates set forth below.
Fourth Quarter 2012 Full Year 2013
Low - High Low - High
Projected EPS (diluted) $ 0.42 - $ 0.44 $ 1.75 - $ 1.90
Add:
Projected Company Share of Real
Estate 0.80 - 0.80 3.25 - 3.25
Depreciation and Amortization
Less:
Projected Company Share of Gains
on 0.00 - 0.00 0.00 - 0.00
Sales of Real Estate
Projected FFO per Share $ 1.22 - $ 1.24 $ 5.00 - $ 5.15
(diluted)
Boston Properties will host a conference call on Wednesday, October 24, 2012
at 10:00 AM Eastern Time, open to the general public, to discuss the third
quarter 2012 results, the fourth quarter 2012 and fiscal year 2013 projections
and related assumptions, and other related matters that may be of interest to
investors. The number to call for this interactive teleconference is (877)
706-4503 (Domestic) or (281) 913-8731 (International) and entering the
passcode 40054121. A replay of the conference call will be available through
November 7, 2012, by dialing (855) 859-2056 (Domestic) or (404) 537-3406
(International) and entering the passcode 40054121. There will also be a live
audio webcast of the call which may be accessed on the Company’s website at
www.bostonproperties.com in the Investor Relations section. Shortly after the
call a replay of the webcast will be available in the Investor Relations
section of the Company’s website and archived for up to twelve months
following the call.
Additionally, a copy of Boston Properties’ third quarter 2012 “Supplemental
Operating and Financial Data” and this press release are available in the
Investor Relations section of the Company’s website at
www.bostonproperties.com.
Boston Properties is a fully integrated, self-administered and self-managed
real estate investment trust that develops, redevelops, acquires, manages,
operates and owns a diverse portfolio of Class A office space, one hotel,
three residential properties and three retail properties. The Company is one
of the largest owners and developers of Class A office properties in the
United States, concentrated in five markets – Boston, New York, Princeton, San
Francisco and Washington, DC.
This press release contains forward-looking statements within the meaning of
the Federal securities laws. You can identify these statements by our use of
the words “assumes,” “believes,” “estimates,” “expects,” “guidance,”
“intends,” “plans,” “projects” and similar expressions that do not relate to
historical matters. You should exercise caution in interpreting and relying on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond Boston
Properties’ control and could materially affect actual results, performance or
achievements. These factors include, without limitation, the Company’s ability
to satisfy the closing conditions to the pending transactions described above,
the ability to enter into new leases or renew leases on favorable terms,
dependence on tenants’ financial condition, the uncertainties of real estate
development, acquisition and disposition activity, the ability to effectively
integrate acquisitions, the uncertainties of investing in new markets, the
costs and availability of financing, the effectiveness of our interest rate
hedging contracts, the ability of our joint venture partners to satisfy their
obligations, the effects of local, national and international economic and
market conditions (including the impact of the European sovereign debt
issues), the effects of acquisitions, dispositions and possible impairment
charges on our operating results, the impact of newly adopted accounting
principles on the Company’s accounting policies and on period-to-period
comparisons of financial results, regulatory changes and other risks and
uncertainties detailed from time to time in the Company’s filings with the
Securities and Exchange Commission. Boston Properties does not undertake a
duty to update or revise any forward-looking statement, including its guidance
for the fourth quarter 2012 and full fiscal year 2013, whether as a result of
new information, future events or otherwise.
Financial tables follow.
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2012 2011
(in thousands, except for share amounts)
(unaudited)
ASSETS
Real estate $ 13,165,836 $ 12,303,965
Construction in progress 937,475 818,685
Land held for future 273,922 266,822
development
Less: accumulated depreciation (2,843,167 ) (2,642,986 )
Total real estate 11,534,066 10,746,486
Cash and cash equivalents 1,223,215 1,823,208
Cash held in escrows 32,253 40,332
Investments in securities 11,792 9,548
Tenant and other receivables,
net of allowance for doubtful 45,039 79,838
accounts of $1,381 and $1,766,
respectively
Related party notes receivable 282,206 280,442
Interest receivable from 102,122 89,854
related party notes receivable
Accrued rental income, net of
allowance of $2,771 and $2,515, 579,553 522,675
respectively
Deferred charges, net 534,898 445,403
Prepaid expenses and other 132,109 75,458
assets
Investments in unconsolidated 664,690 669,722
joint ventures
Total assets $ 15,141,943 $ 14,782,966
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable $ 2,848,686 $ 3,123,267
Unsecured senior notes, net of 4,639,217 3,865,186
discount
Unsecured exchangeable senior 1,162,955 1,715,685
notes, net of discount
Unsecured line of credit - -
Accounts payable and accrued 193,492 155,139
expenses
Dividends and distributions 93,461 91,901
payable
Accrued interest payable 98,601 69,105
Other liabilities 309,004 293,515
Total liabilities 9,345,416 9,313,798
Commitments and contingencies - -
Noncontrolling interest:
Redeemable preferred units of 110,876 55,652
the Operating Partnership
Equity:
Stockholders' equity
attributable to Boston
Properties, Inc.
Excess stock, $.01 par value,
150,000,000 shares authorized, - -
none issued or outstanding
Preferred stock, $.01 par
value, 50,000,000 shares - -
authorized, none issued or
outstanding
Common stock, $.01 par value,
250,000,000 shares authorized,
150,935,137 and 148,186,511
shares issued and 150,856,237
and 148,107,611 shares
outstanding at September 30,
2012 and December 31, 2011, 1,509 1,481
respectively
Additional paid-in capital 5,194,569 4,936,457
Dividends in excess of earnings (59,621 ) (53,080 )
Treasury common stock, at cost (2,722 ) (2,722 )
Accumulated other comprehensive (14,379 ) (16,138 )
loss
Total stockholders' equity
attributable to Boston 5,119,356 4,865,998
Properties, Inc.
Noncontrolling interests:
Common units of the Operating 568,147 548,581
Partnership
Property partnerships (1,852 ) (1,063 )
Total equity 5,685,651 5,413,516
Total liabilities and equity $ 15,141,943 $ 14,782,966
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2012 2011 2012 2011
(in thousands, except for per share amounts)
Revenue
Rental
Base rent $ 370,494 $ 358,607 $ 1,098,870 $ 1,042,729
Recoveries from 59,957 53,194 169,179 146,689
tenants
Parking and 23,070 21,679 69,021 61,838
other
Total rental 453,521 433,480 1,337,070 1,251,256
revenue
Hotel revenue 9,359 8,045 26,224 22,897
Development and
management 8,024 8,178 25,734 24,699
services
Total revenue 470,904 449,703 1,389,028 1,298,852
Expenses
Operating
Rental 168,939 153,776 487,238 436,300
Hotel 6,886 6,032 19,601 18,052
General and 19,757 16,917 66,442 60,281
administrative
Transaction 1,140 474 3,252 1,907
costs
Depreciation
and 111,360 108,674 331,943 327,526
amortization
Total expenses 308,082 285,873 908,476 844,066
Operating 162,822 163,830 480,552 454,786
income
Other income
(expense)
Income from
unconsolidated 9,217 11,326 42,129 28,184
joint ventures
Interest and 4,001 1,252 8,029 4,179
other income
Gains (losses)
from 587 (860 ) 1,202 (481 )
investments in
securities
Gains (losses)
from early (5,494 ) - (4,453 ) -
extinguishments
of debt
Interest (105,030 ) (95,117 ) (308,168 ) (288,225 )
expense
Income from
continuing 66,103 80,431 219,291 198,443
operations
Discontinued
operations
Income (loss)
from - 20 884 (60 )
discontinued
operations
Gain on sale of
real estate
from - - 36,877 -
discontinued
operations
Gain on
forgiveness of
debt from - - 17,807 -
discontinued
operations
Net income 66,103 80,451 274,859 198,383
Net income
attributable to
noncontrolling
interests
Noncontrolling
interests in (458 ) (86 ) (1,461 ) (1,118 )
property
partnership
Noncontrolling
interest -
redeemable
preferred units
of the
Operating
Partnership (874 ) (832 ) (2,440 ) (2,497 )
Noncontrolling
interest -
common units of (7,002 ) (8,989 ) (23,393 ) (23,417 )
the Operating
Partnership
Noncontrolling
interest in
discontinued
operations -
common units of
the
Operating - (2 ) (6,092 ) 8
Partnership
Net income
attributable to
Boston $ 57,769 $ 70,542 $ 241,473 $ 171,359
Properties,
Inc.
Basic earnings
per common
share
attributable to
Boston
Properties,
Inc.:
Income from
continuing $ 0.38 $ 0.48 $ 1.28 $ 1.18
operations
Discontinued - - 0.33 -
operations
Net income $ 0.38 $ 0.48 $ 1.61 $ 1.18
Weighted
average number
of common 150,801 147,006 149,823 145,006
shares
outstanding
Diluted
earnings per
common share
attributable to
Boston
Properties,
Inc.:
Income from
continuing $ 0.38 $ 0.48 $ 1.27 $ 1.18
operations
Discontinued - - 0.33 -
operations
Net income $ 0.38 $ 0.48 $ 1.60 $ 1.18
Weighted
average number
of common and
common
equivalent 151,983 147,622 150,478 145,625
shares
outstanding
BOSTON PROPERTIES, INC.
FUNDS FROM OPERATIONS (1)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2012 2011 2012 2011
(in thousands, except for per share amounts)
Net income
attributable
to Boston $ 57,769 $ 70,542 $ 241,473 $ 171,359
Properties,
Inc.
Add:
Noncontrolling
interest in
discontinued
operations -
common units
of the - 2 6,092 (8 )
Operating
Partnership
Noncontrolling
interest -
common units
of the
Operating
Partnership 7,002 8,989 23,393 23,417
Noncontrolling
interest -
redeemable
preferred
units of
the Operating 874 832 2,440 2,497
Partnership
Noncontrolling
interests in 458 86 1,461 1,118
property
partnerships
Less:
Income (loss)
from - 20 884 (60 )
discontinued
operations
Gain on sale
of real estate
from - - 36,877 -
discontinued
operations
Gain on
forgiveness of
debt from - - 17,807 -
discontinued
operations
Income from
continuing 66,103 80,431 219,291 198,443
operations
Add:
Real estate
depreciation
and 132,693 134,777 400,213 408,376
amortization
(2)
Income (loss)
from - 20 884 (60 )
discontinued
operations
Less:
Gain on sale
of real estate
included
within income
from
unconsolidated 248 - 248 -
joint ventures
Noncontrolling
interests in
property
partnership's
share
of funds from 923 549 2,889 2,508
operations
Noncontrolling
interest -
redeemable
preferred
units of
the Operating 874 832 2,440 2,497
Partnership
Funds from
operations
(FFO)
attributable
to the
Operating
Partnership 196,751 213,847 614,811 601,754
Less:
Noncontrolling
interest -
common units
of the
Operating
Partnership's
share of funds 20,625 23,573 64,941 70,089
from
operations
Funds from
operations
attributable $ 176,126 $ 190,274 $ 549,870 $ 531,665
to Boston
Properties,
Inc.
Boston
Properties,
Inc.'s
percentage
share of funds
from
operations - 89.52 % 88.98 % 89.44 % 88.35 %
basic
Weighted
average shares 150,801 147,006 149,823 145,006
outstanding -
basic
FFO per share $ 1.17 $ 1.29 $ 3.67 $ 3.67
basic
Weighted
average shares 153,310 149,083 151,836 147,086
outstanding -
diluted
FFO per share $ 1.16 $ 1.28 $ 3.64 $ 3.64
diluted
(1) Pursuant to the revised definition of Funds from Operations adopted by the
Board of Governors of the National Association of Real Estate Investment
Trusts (“NAREIT”), we calculate Funds from Operations, or “FFO,” by adjusting
net income (loss) attributable to Boston Properties, Inc. (computed in
accordance with GAAP, including non-recurring items) for gains (or losses)
from sales of properties, impairment losses on depreciable real estate of
consolidated real estate, impairment losses on investments in unconsolidated
joint ventures driven by a measurable decrease in the fair value of
depreciable real estate held by the unconsolidated joint ventures, real estate
related depreciation and amortization, and after adjustment for unconsolidated
partnerships and joint ventures. FFO is a non-GAAP financial measure. The use
of FFO, combined with the required primary GAAP presentations, has been
fundamentally beneficial in improving the understanding of operating results
of REITs among the investing public and making comparisons of REIT operating
results more meaningful. Management generally considers FFO to be a useful
measure for reviewing our comparative operating and financial performance
because, by excluding gains and losses related to sales of previously
depreciated operating real estate assets, impairment losses and real estate
asset depreciation and amortization (which can vary among owners of identical
assets in similar condition based on historical cost accounting and useful
life estimates), FFO can help one compare the operating performance of a
company's real estate between periods or as compared to different companies.
Our computation of FFO may not be comparable to FFO reported by other REITs or
real estate companies that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT definition
differently.
FFO should not be considered as an alternative to net income attributable to
Boston Properties, Inc. (determined in accordance with GAAP) as an indication
of our performance. FFO does not represent cash generated from operating
activities determined in accordance with GAAP, and is not a measure of
liquidity or an indicator of our ability to make cash distributions. We
believe that to further understand our performance, FFO should be compared
with our reported net income attributable to Boston Properties, Inc. and
considered in addition to cash flows in accordance with GAAP, as presented in
our consolidated financial statements.
(2) Real estate depreciation and amortization consists of depreciation and
amortization from the Consolidated Statements of Operations of $111,360,
$108,674, $331,943 and $327,526, our share of unconsolidated joint venture
real estate depreciation and amortization of $21,664, $25,633, $68,298 and
$79,378, and depreciation and amortization from discontinued operations of $0,
$821, $1,040 and $2,477, less corporate-related depreciation and amortization
of $331, $351, $1,068 and $1,005 for the three and nine months ended September
30, 2012 and 2011, respectively.
BOSTON PROPERTIES, INC.
PORTFOLIO LEASING PERCENTAGES
% Leased by Location
September 30, 2012 December 31, 2011
Boston 91.1 % 87.1 %
New York 94.2 % 97.8 %
Princeton 77.3 % 75.8 %
San Francisco 89.7 % 87.9 %
Washington, DC 94.4 % 96.9 %
Total Portfolio 91.6 % 91.3 %
% Leased by Type
September 30, 2012 December 31, 2011
Class A Office Portfolio 91.6 % 91.3 %
Office/Technical Portfolio 90.6 % 92.6 %
Total Portfolio 91.6 % 91.3 %
Contact:
Boston Properties, Inc.
Michael Walsh, 617-236-3410
Senior Vice President, Finance
or
Arista Joyner, 617-236-3343
Investor Relations Manager